Dispatch (UK/ROW edition)
| by Paul Gosling 24 Sep 2008 Topic: News |
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Liechtenstein bows to pressureLiechtenstein has yielded to international pressure, agreeing to share financial information on non-residents who bank in the principality. Prince Alois - the permanent representative of his father, who is the head of state - said Liechtenstein's new approach reflected an international mood towards mutual assistance on tax. 'In the future, we should offer all states comprehensive co-operation if they are willing to find sensible solutions with us for the client relationships we have built up, and if they are interested in fair and constructive co-operation,' said Prince Alois. He indicated a willingness to enter double taxation agreements with other countries - at present Liechtenstein only has an agreement with Austria. Liechtenstein has been under enormous pressure from other governments, particularly Germany and the United States, because it allows citizens to bank in the country to avoid paying tax. A recent investigation by a US Senate committee concluded that Liechtenstein's LGT banking group - owned by the ruling royal family - has been enabled in tax evasion by US citizens. LGT's trust office in Liechtenstein holds an estimated $7bn in assets, with about 3,000 offshore accounts, of which about a hundred belong to US clients. Other investigations have suggested that a similar number of clients are based in the UK and perhaps as many as 1,500 accounts belong to German clients. LGT told the committee that allegations against it referred to past rather than current business practices. While the Senate's investigation concluded that the cost to the US tax authorities of US citizens using LGT's services could not be estimated, it believes that tax havens cost the US about $100bn annually in lost tax. Substantial sums have been lost because of US citizens' use of accounts with UBS, concluded the Senate investigation. A UBS official alleged that his former bank managed about $20bn of undeclared assets for US clients. UBS told the Senate committee that it holds about 19,000 accounts in Switzerland for US clients that have not been declared to US tax authorities. UBS has agreed to no longer provide offshore banking or securities services to US residents. It has also promised to work with US authorities to identify US clients who may have engaged in tax fraud. ACCA grows even strongerACCA has been confirmed as the fastest-growing UK-based accountancy body in the latest edition of the Professional Oversight Board's annual review of institutes and firms. ACCA members are more likely to be based outside the UK, to be younger, to be female and less likely to be retired than those of any other UK-based institution. At the end of last year, ACCA had 122,426 members and 276,057 students worldwide. Membership had grown by 28.3% in the previous five years - a higher rate of growth than that of any other accountancy body. Nearly half - 47.5% - of ACCA members are based outside the UK and Ireland. More than half work in industry and commerce, with 29% in public practice and 10% in the public sector. Just 4% are retired - a lower proportion than that in any other institution (nearly a quarter of CIPFA's members are retired). More than 40% of ACCA members are women, compared with an average across the accountancy bodies of just 31%. The Professional Oversight Board also analysed trends in accountancy firms. There is a continued fall in the number of practising audit firms, with a reduction of nearly a third in five years. Another trend has been in Big Four firms earning non-audit income from non-audit clients in place of earning it from audit clients, reflecting regulatory pressure. PricewaterhouseCoopers remained substantially the largest Big Four firm in 2007, with total fee income in the UK of £2.1bn. The next largest firm was Deloitte with £1.8bn in total fee income, followed by KPMG with £1.6bn, and Ernst & Young with £1.2bn. Commission halts Balkans' subsidiesThe European Commission has suspended EURO150m of agricultural support funding to Romania, as pressure increases on it and neighbouring Bulgaria to improve government accounting practices and drive out public sector corruption. Payments to Romania were halted because of complaints about its auditing of spending. Farm subsidies to Bulgaria of €486m were halted earlier this year over worries about how EU money is spent. The European Commission published a highly critical report in July, pointing to corruption and organised crime in both countries. Bulgaria and Romania joined the EU at the start of last year, despite worries about the extent of organised crime and allegations of its influence within government. This caused the EU to retain 'safeguard clauses', enabling the European Commission to continue to monitor both governments closely. There are now suggestions that further economic and political progress in the two countries will slow and moves towards their integration with the rest of the EU put on hold. Specifically, they may not be permitted to join the euro currency, or included in the Schengen area of free movement for citizens. At present, EU aid over the next six years, worth €32bn to Romania and €11bn to Bulgaria, is not at risk. The EU is particularly concerned about the failure to resolve in the courts allegations of corruption against senior politicians. July's report on Bulgaria referred to 'high-level corruption'. There is support for Romania's creation of a National Integrity Agency to investigate and punish corruption in the public sector, but this has yet to prove its value. Yet the EU is reluctant to reveal publicly its full discontent with Romania and Bulgaria. Willem de Pauw, a Belgian prosecutor who advises the EU, wrote a much stronger report, which was suppressed and only made public by The Economist. De Pauw concluded that rather than making progress, Romania, in particular, is 'regressing on all fronts'. Meanwhile, a high-profile corruption legal action has been launched by a UK company, Eastern Duty Free, making serious allegations about the way commerce with the public sector is conducted in Romania. It could be several years before outside companies and politicians will feel comfortable doing business with the Balkans newcomers. Siemens seeks damagesSiemens is claiming damages from former members of its management board for their alleged involvement in paying bribes to win contracts. Siemens' decision follows the completion of the first of what is expected to be a series of court cases on corporate bribery charges against senior managers within the company. Reinhard Siekaczek has been given a €108,000 fine and a two-year suspended prison sentence after being found guilty of involvement in the making of corrupt payments by Siemens' telecommunications division. Siekaczek did not deny the charges and claimed that payments of around EURO49m were authorised by senior executives. Witnesses in the trial claimed individuals at high levels within the organisation knew about the payments. Siemens has made a €201m payment to German authorities to settle related claims against the company. An investigation currently being undertaken by the US Securities and Exchange Commission may levy the highest penalties yet on Siemens. Last year, Siemens was fined €396m by the European Union for membership of a cartel in the gas-insulated switchgear sector, in which Siemens was described by the EU as 'a leader'. Siemens admits that about €1.3bn of corrupt payments were channelled through a corporate slush fund. It has now agreed to seek damages from former members of the managing board's Corporate Executive Committee. 'The eleven former members of the Corporate Executive Committee... will be given an opportunity to state their positions on the accusations before legal action for damages is taken,' said a statement by Siemens. As the scale of the allegations against Siemens and its executives became clear in recent months, the company began a thorough overhaul of senior management. The company's chief executive and chairman, who both deny any knowledge of the corruption, were replaced. Subsequently, almost all senior managers were required to leave, and a total of 16,750 staff were made redundant as the organisation became substantially reorganised. VAT cut for local services?VAT could be reduced on selective goods if European Commission proposals to permit lower VAT for labour-intensive services and locally supplied services are approved. The measures address French concerns at the impact of VAT on the restaurant trade and would allow member states to make permanent arrangements not to levy VAT on certain products, such as newspapers in the UK. The move would be introduced as part of a small businesses act to help the SME sector, but application of the lower rates of VAT would be optional for member states. Labour-intensive sectors, such as repairs, maintenance, cleaning and home renovation, would be covered by the proposed measures. More comprehensive proposals to use the VAT system to promote environmentally sustainable practices will be published later this year. Laszlo Kovacs, commissioner for Taxation and Customs Union, said the move would allow all member states to apply reduced VAT in sectors where other member states already apply lower rates. He explained: 'I want to provide certainty about the application of reduced rates beyond 2010 for labour-intensive sectors and provide all member states with the same options. There is no reason why restaurant services, for example, should be allowed to benefit from a reduced rate in one-half of the European Union, but not in the other half.' But the UK's Institute for Fiscal Studies (IFS) has proposed moving in the opposite direction by abolishing zero and reduced rates of VAT. This would cut compliance and administration costs for business and government, reduce the distortion of personal spending decisions and raise taxes by £11bn annually, said an IFS report. The extra tax income could be used to improve the standard of living among the poor, but would raise the retail price index initially by 3.5%. Banks' settlements hit tens of billionsLeading global banks are to pay tens of billions of dollars to investors in probably the largest ever settlement of investor claims. Actions by the US Securities and Exchange Commission (SEC), the New York Attorney General and the UK's Financial Services Authority suggest that regulators will take a hard line with banks over investor losses flowing from the global crisis in securities trading. Banks are having to bail out investors from the collapse in value of auction rate securities. These are bonds and other securities that are long-dated or open-ended and without fixed yields - the yields are set by Dutch auction on settlement dates. They are mostly issued by US municipalities and student loan bodies, and have been used for 20 years, with about $263bn of auction rate securities outstanding. But the market for auction rate securities collapsed in February. Investors believed the securities were highly liquid, but there was no market when auctions ceased to be held. The result, in the case of UBS, was that more than 40,000 investors were forced to hold the securities on a permanent basis. Now a preliminary settlement between the SEC and UBS requires the bank to pay $22bn to more than 31,000 investors, of which $10bn will go to institutional investors. UBS is obliged to buy back auction rate securities at par and must act quickly to provide liquidity to affected investors. It must also fully compensate investors for losses incurred where securities have been sold since the market collapsed. A preliminary settlement has also been agreed with Citibank, involving the restitution of $7.5bn to individual investors, charities and small businesses, and the bank using 'its best efforts' to liquidate $12bn for institutional investors by the end of next year. Wachovia, too, has agreed to buy back auction rate securities at a potential cost of nearly $9bn. UBS, Citibank and Wachovia face subsequent financial penalties from the SEC. The SEC has been working closely on the investigations with New York Attorney General Andrew Cuomo. Under agreements with Cuomo's office, JP Morgan and Morgan Stanley will together return more than $7bn to investors. Morgan Stanley is also to pay $35m in civil penalties under the agreement and JP Morgan will pay $25m. In briefTransfer pricing hits US coffers FSA closes boiler room Complex IHT rules unclear to relatives Mortgage repossessions up HMRC accounts qualified - again Treasury to end travel expenses loophole Bank fraud losses at record high Pension liabilities put companies at risk ID fraud service launched | |